Law making by outrage of the day


Hard cases make bad law, act in haste, repent at leisure....there are any number of aphorisms that suggest that we might at least try and think before we act. Especially where the act of law making is to be committed.

In a frenzy of foaming rage over the retention bonuses being paid to people at AIG Financial Products the House of Representatives has passed a law stating that the tax rate on bonuses over $250,000 a year at firms that have been bailed out by the US Government will be 90%. As Henry Blodgett points out, this is absurd for a number of reasons. It's household income for a start and the effect will be to raise salaries while curbing bonuses: because the tax only applies to bonuses, not salaries.

However, there's one further level of stupidity that no one seems to have noted as yet. US tax laws apply to those who work in the US, of course. They also, uniquely amongst countries, apply to US citizens who work in other countries. But they most assuredly do not apply to non US citizens working outside the United States...even if they do work for US companies which have been bailed out by the Feds.

So, let us take the purely imaginary example of a London based subsidiary of a large US insurance company. This subsidiary bankrupted the parent company by being silly fools in the derivatives market. Difficult to imagine, I know, but suspend disbelief for a little bit more. The staff of this subsidiary were a mixed lot, as is common in finance. Some Americans and some from other countries. The result of this law is that those American employees, working for this US company which has been bailed out, will face 90% tax on their bonuses. The non-US employees will face the standard 40% UK tax rates. The end effect would be, I assume, that Americans would no longer work for the overseas offices of American companies, their jobs going to non-Americans who are in no danger of being touched by this law.

D'ye think that anyone at all in Congress thought about this when they were slavering to pass this law? No, me neither.

But of course this is entirely hypothetical. I have no idea whether there are any non US citizens that work for AIG Financial Products, the London derivatives subsidiary of a large US insurance compay and the company whose bonus plans sparked off the legislative frenzy and the bailout itself.